National Grid warns of stalled investment in power generation

The head of National Grid has warned of “significant delays” to new power generation in the UK, amid growing concerns about the direction of UK energy policy.

Steve Holliday said the UK had enjoyed “huge inflows” of foreign capital into its energy sector in recent years, but “at the moment people aren’t investing”. “Britain has a reputation for providing long-term stability, certainty and surety for investors. That reputation is under threat, more now than it has ever been.”

Energy has risen to the top of the political agenda since five of the big six power suppliers announced inflation-busting price increases, stoking an intense debate about the rising cost of living.

Ed Miliband, Labour leader, fuelled the row by promising to freeze energy prices for 20 months if his party wins the next election. Scrambling to respond, ministers have promised to rein in government green levies that have been a key factor in rising bills.

But there have been concerns that the political furore over energy prices could damage investor confidence and make it harder for infrastructure projects to be built.

Yet with a fifth of the UK’s power-generating capacity set to close in the next decade, spending on big-ticket projects such as the construction of new power stations will be crucial if the country is to keep the lights on.

He said National Grid had been expecting to connect up 6,000 megawatts of new power generation capacity over the next three years. The company has now revised that figure down to 2,500MW.

Ofgem, the UK energy regulator, has been warning of the risks to security of supply amid tightening reserve margins – the excess of installed generation over demand – in the coming years as ageing power stations are closed down. It estimates that margins could fall as low as 2 per cent by 2015-16, down from 14 per cent in 2012.

He said the company’s results were in line with expectations, both operationally and financially. It was the first year National Grid has operated under a new formula for controlling UK prices, which will run until April 2021.

Ofgem introduced price controls in April to set returns on the Grid’s regulated UK electricity and gas assets over eight years.

The company, which owns and operates gas and electricity transmission and distribution networks in the UK and northeastern US, maintained its outlook for operating performance, asset growth and earnings for the full year.